Michael D. Moberly August 24, 2016 ‘A blog intersecting intangible assets and business’.
A company initiating, or even contemplating, a M&A (merger or acquisition) would be well served today if a ‘company culture assessment’ was included in their due diligence strategy!
The primary reason of course, as consistently conveyed at this blog, is the economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in or directly evolve from IA’s (intangible assets), which company culture is a prime example. It’s correct to assume then, that a substantial factor in the rationale of the initiator evolves around acquiring and then merging specific IA’s which the target firm presumably has already developed, and exist in some specialized form of intellectual, structural, and/or relationship capital.
From an operational perspective, intellectual and structural capital constitutes the knowhow and processes which underlie – are embedded in the target company’s means for generating revenue, competitive advantages, and creating efficiencies, etc. So, in M&A transactions, acquiring full and unimpeded control and use of these contributory IA’s represents the critical step toward realizing-maximizing the projected (anticipated, desired) outcomes.
To the uninitiated, a target company’s operational culture may be overlooked, dismissed, or even deemed irrelevant to a transactions’ projected outcome. It’s unwise for due diligence teams to assume, that should a proposed M&A transaction or strategic alliance, etc., be executed, the relevant-targeted IA’s will be wholly transferable or remain fully operable. Hence the prudence for transaction – due diligent management teams to assess – determine whether the IA’s being sought can remain intact. In short, can embedded IA’s originating-developed in one company be transferrable and operationally replicable in another company.
More specifically, transaction management – due diligence teams would be well advised to objectively study-assess the targeted company’s operating culture in personnel and temperament contexts. An objective is to determine if those (company) culture factors can readily (and rapidly) integrate and bond with the initiating company, its employees, and stakeholders? Grant McCracken, a well-known and experienced personality in this arena suggests company cultures are internal versions of a company’s brand. That’s largely attributable to a broader recognition of the reality that company culture generally encompasses its mission, vision, and values.
Understanding in advance, how company culture can impact a business, e.g., “culture is a company’s last mile” (McCracken). If believed, and I do, it makes a very compelling case that a company’s culture is marketing’s proverbial – millennial ‘silver bullet’. Certainly, no disagreement here!
But, before embarking on a company culture assessment (Margaret Mehta) the target company should be distinguished on several cultural dimensions. In a perfect world, there should be no resistance to company culture assessment as an integral component to most any transaction’s due diligence. The key is that due diligence teams are operationally familiar with the characteristics and features of company’s culture as unique convergence of IA’s, i.e., intellectual, structural, and relationship capital.
The deep and necessary insight that a company culture assessment (due diligence) brings to transaction management and oversight, in essence, prescribes a strategic path how (culture) performance will be replicated. But, transaction management (due diligence) teams should also recognize that culture performance is also a measurement mechanism that drives employee behavior.
So, if there are particular aspects of a target company’s culture that appear undesirable, non-transferrable, or un-yielding to adaptation-replication and therefore impede a transactions projected milestones for success, this should be clarified. Obviously, I am a strong advocate of conducting company culture due diligence for most any business transaction while recognizing standing alone, culture alignment may not be the singular guarantee to a successful and profitable transaction outcome.
.This post was inspired and adapted by Michael D. Moberly from the fine work authored by Monica Mehta in a February 2009 piece in Profit and Profit Online.